Posts Tagged ‘borrower’

It is perhaps ungrateful of me to start with a gripe. But I do not like the idea of major lenders being involved with micro-finance. Somehow it seems to deny the very purpose of the idea. But perhaps I am more minded of the origins of micro-finance, in developing countries, to aid those needing small sums to start a truly small business.

However the code has the BBA Statement of Principles as Annex B. It is a pity, that the British BBA, quotes figures in Euros and not good British pounds in this.

First the principles make clear that the bank has an obligation to ensure clarity for the borrower, and that it should advise the customer to seek advice on the bank’s proposal. Certainly a desirable approach.

The obvious exchanges of information through the finance period are set out, and this makes for clarity. There may also be independent reviews of the micro-business – though without clarity about how the reviewer will be chosen.

While it can be painful where it happens the principles wisely state that any harsh realities need to be faced and acted upon. this can, of course, include closing the business. Facing it when the signs are clear will be better for the micro-finance borrower, I agree.

As a sort of mixed ‘we are on your side’ message there is also the statement promising no legal action if… essentially closing the business when advised. Again it looks quite harsh, but it does make better sense to ‘live to fight another day’.

The banks clearly reserve the right to confirm that appointing a receiver would be the right action, and I can’t see them arguing against it; I’m not sure what that provision is for, since it would be in the contracts anyway, I would have thought.

The complaints procedures are similar to the individual borrower’s and I will deal with that in a later blog here.

But there is particularly a requirement on the lender to enable moving an account to another bank.

Anyway I’m back with the blog and thought a quick review of the national and international scene might be worth the time.

I can actually remember when most people would at least be aware of the saying ‘neither a lender nor a borrower be’. And then, right at the beginning of the ’60s, came to our shores the first hire purchase company [Union Discount if I have the name right – started by the man who later created the Bank of Wales].

Hire purchase (h.p.) was quickly dubbed ‘the never-never’. I am still not sure if this meant you never finished paying, or if it meant that you never fully paid.

The first implied that the company had you in its grasp, the second that one paid in such small amounts over such a long time that you never really paid its value. When inflation was serious (remember it has reached 15 per cent a year within the past 40 years) of course the value of the cash used to pay was indeed well below the worth at the time the contract was signed.

It may have been at first that the loan was secured against the item, but later the loan became separate. In a way credit cards work on a similar basis except that the loan is never tied to any goods specifically.

Over the years the idea of credit grew and caught on. After all kings had always borrowed money – to fight wars if nothing else – and the Government of England had found itself with a debt in the seventeenth century.

That debt led to the creation of the Bank of England – a private joint stock company, empowered by parliament to handle the national debt!

The entrepreneur who had seen the opportunity later went on to bankrupt Scotland and force the union of the two countries. But that, as you can imagine, is a quite different story!

By about twenty years ago the idea of credit, that old frowned on idea of ‘buying on tick’, was accepted. Governments had early learnt how easy it was to run deficits on the nations’ dealings internationally – the balance of payments – and on the annual budget.

And we did not resist the idea of having more goods than we had earnt!

And companies, who always had been dealing with uncertainty, found debt a very good way of dealing with the lags between orders and delivery and distribution and sale. And then came the more relaxed control of the financial sector.

And the development of ‘derivatives’, and sub-prime mortgages. I don’t have to tell you much about those now, as they have been well discussed in the press, on radio and on television.

And in blogs…

I have seen all that well described as MLMs and Ponzi schemes, and the whole sector as a casino. And when those bastions of sobriety, the banks, joined in I am afraid there was nowhere else to go but down.

‘Down the rabbit hole,’ as Lewis Carroll put it so well, and in to Wonderland. Well a land in which the great and the good certainly seem to have well-developed senses of self-delusion.

And you spotted how our very own Gordon has taken centre stage, as though born to acting.

But then aren’t all politicians? [Paulson on his knees to Pelosi – I ask you!]

Meanwhile the massive $707bn that Paulson and Bernanke twisted arms to get the US Congress to approve to buy ‘toxic’ [don’t you love that term? It means poisonous!] debts from the banks is now not going to be for that.

Whatever; its purpose appears to be to pay the gambling debts of those big businesses, rather than to spur the US economy, which has a really big hangover from the ‘credit economy’.

Not incidentally that the $707bn tag is even very relevant to the new debt we are all going to have to pay off some time – through taxes – which as already reached about $2trn [that’s $2,000,000,000,000]. Maybe it needs some more noughts. It is big for sure.

It is about $300,000 for every man, woman and child on the planet – assuming a population around 6.7bn. In English say £200,000. But the possible real amount of toxic debt – silly me, I mean derivatives including sub-primes that have gone sour [not all have] – is about five times that.

So you owe a million; so do I. that puts our personal problems in perspective, huh?